Inflation Unwind?

Because I am short the US Dollar, I watch US Treasury auctions very carefully. They continue to be under subscribed requiring "Primary Dealers" to buy what is unsold. This is the downside of the normally positive edge you get for being crowned a Primary Dealer.

The problem I see is that the amounts being bought month after month by these primary dealers exceed the cash on hand in the balance sheets. This means that the transactions are being conducted off balance sheet and someone is giving them the money to do the purchase. There are only two entities large enough to fund such actions: (1) the Federal Reserve itself could print the money and give it to the PDs off-balance sheet or (2) The CBO China could do it (but I doubt it).

Action (1) above is essentially quantitative easing [printing money] but being performed in a way that is invisible. This is becoming too big to unwind with annual US debt approaching $2T/year. This means inflation.

While I strongly feel that Action (1) is happening, I was is a discussion group with a fairly intelligent Conspiracy Theorist who believes Action (2) is happening. His idea is that Countries conquering other countries through war is passe'. He believes the 21st Century conquering is done by one country simply purchasing another. It is bloodless, doesn't destroy valuable assets and allows the respective economies of both countries to stay intact. He laughs when I point out that I think the US should sell Alaska to China by saying that I am only partially right. He contends that the whole country is being sold for the purpose of creating a New World Order, elimination of the United Nations, a the formation of a "Mega Country" [China US merger] which will control the world.

When I hear stories like this it makes me think my assessment of the situation is very rational. I think off-balance sheet is happening in a very big way.

Keep an eye on UDN, it is a method for US Citizens to short the dollar.